Mortgage Credit Certificates
(a.k.a. How to send the IRS thousands of dollars less)
The Industrial Development Authorities throughout the states of Arizona, Colorado, and Nevada are at it again. These same agencies that frequently offer lost cost “Bond” loans are sponsoring a single family Mortgage Credit Certificate (MCC) program. These certificates entitle borrowers to an annual dollar-for-dollar reduction in federal income tax liability.
Mortgage Credit Certificates aren’t new; in fact, they have been around since the 1980’s. Even though they offer a tremendous savings for homebuyers, they aren’t well understood.
The Mortgage Credit Certificate gives you a tax credit of 20 to 30%* of the interest paid on your home loan. This credit can amount to thousands of dollars each year for the life of your mortgage loan. If your tax liability is less than the amount of the credit, the unused portion may be carried forward in the next three years. What’s more, you can retain the remaining 70 to 80% of the standard mortgage deduction.
For example: If the year’s mortgage interest payments totaled $10,000, you’d subtract $2,000 (20 of $10,000) from the federal income tax amount that you owe. If necessary, you can also use this savings as additional income to qualify for the loan! In addition, you would still be entitled to a home mortgage interest deduction of $8,000.
There are income restrictions based on family size and these vary depending on the location of the home. The program is generally limited to first-time homebuyers (those who haven’t owned a home in the past 3 years) – unless you are purchasing a home in an identified “target” area. There are sales price restrictions that vary by location as well. Your Nova loan officer can help you identify your market’s particular guidelines.
The Mortgage Credit Certificate program is available for FHA, VA, and conventional financing programs.
Being able to take advantage of a higher tax write off may give you the ability to drop your monthly tax withholding and put more cash in your pocket every month. This gives you more money to spend on a mortgage payment without stressing your wallet.
Some down payment assistance programs allow us to add the Mortgage Credit Certificate for extra savings. Imagine, getting the down payment provided to you and saving extra money on your income taxes!
If you are a real estate professional, you can use the Mortgage Credit Certificate as a tool to attract and qualify more buyers or to increase the interest in your listings. Just imagine the impact you can have by saying “Buy this home and you may qualify for special tax incentive program”. If your lender doesn’t know about the MCC program, you should be talking with us at Nova Home Loans.
As with any loan product or feature, you should seek the guidance of your tax professional for specifics on individual tax savings or benefits.
*$2000 monetary limit applies if benefit is greater than 20%